South Africa Imports $1 Billion of Unwrought Gold to Meet Global Demand

 
on May 15 2013 8:47 AM

Today’s AM fix was USD 1,412.25, EUR 1,094.51 and GBP 926.67 per ounce.   Yesterday’s AM fix was USD 1,436.50, EUR 1,103.47 and GBP 938.15 per ounce. 

Cross Currency Table – (Bloomberg)

Gold dropped $6.00 or -0.42% yesterday to $1,425.40/oz and silver finished - 1.02%. 

On Tuesday 14th May, workers at Lonmin PLC, the world’s No. 3 platinum producer in South Africa began a wildcat strike. This caused immediate disruption of all mine production and led to concerns that South Africa was yet again to endure violence and disruption in its mining industry.

Both mining production and output in South Africa has suffered since 34 workers were shot dead by police on August 16th last year.

The disruption to the South African mining industry has led to a shortage in raw materials for the refining and minting of gold bars and coins.

An interesting report by David Yanofsky at QUARTZ sheds some light on the implications of this shortage.

Yanofsky found that South Africa’s $402 million trade surplus with the United States in January had turned into a $689 million deficit by March with the $1.1 billion swing due to unusual shipments of unwrought gold from the US to South Africa in February and March. Unwrought gold is impure gold created from scrap which needs further processing, mainly refining, before it can be used for manufacture of other articles. 

South Africa is still an important gold exporter even though the output from its mines has been falling for over two decades. In a recent list of top producing countries, South Africa had fallen from first to fifth place behind Russia, USA, Australia and the world’s no 1, China.

Opinion is divided on the final destination of the gold but one potential candidate is the South African Mint. The South African Mint produces the most popular gold coin in circulation, the Krugerrand, with over 50 million minted to date.

South Africa has been caught in the middle with its own domestic issues on the one hand, and on the other, the recent surge in demand for gold coins following the COMEX related fall in gold’s price on April 15th.

The global demand for coins and bars that followed the fall in gold’s price caught even the most astute industry observer by surprise and there is no sign of the demand abating.  A point we keep making about gold is the absolute scarcity of the precious metal and Yanofsky makes an interesting observation that the $982 million worth of unwrought gold purchased by Sough Arica would take up no more space than a washing machine. 

NEWS

Gold edges up as dollar eases; snaps 4-day decline - Reuters 

Gold Heads for Worst Run Since February on ETPs, Dollar’s Gain - Bloomberg

African Mine Tensions Grow – Walll Street Journal

France in double dip recession one year into Hollande's presidency – The Telegraph

COMMENTARY

Record High Gold Bullion Sales at the Perth Mint - Coin Update

Gold duty may go up; banks slow coin sales – Indian Express

Bank of England may revise up growth forecasts – The Telegraph

JPM Eligible Gold Plunges To New Record Low, And Why It Could Have Been Much Worse – Zero Hedge

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